Tuesday, June 03, 2008

Ken Thompson's successor at Wachovia?

Almost one year ago, 6/5/07, a post here discussing Wachovia's CEO Kennedy Thompson ended with the comment "watch out for the CEO that enjoys his portrait before retirement". Retirement for Thompson has now come, and not by his choice.

This abrupt turn in the Board's support is not usual practice in the corporate world where someone of Thompson's tenure and former stature is almost always given a graceful way out, even if the world knows that there was a gentle or not so gentle push involved. It's really an amazing turn of events in a North Carolina commercial banking firm. To top that, there are almost no perks involved. Thompson gets an office and an assistant for three years and that's it. No big package other than the normal immediate vesting of already earned stock and options plus his normal retirement plan accrual, large of course, but he was CEO. Where's the driver, the security, the use of the company plane, the extra years of salary and bonus that most of these departing CEO's get even if their track record was tainted. And Thompson only took this nasty turn, most of it his own doing, in the last two or three years. For the previous thirty years of his time in the company he was an absolute star. Not that this is objectionable at all but it is different. What's going on here.

There's more. This change places someone named Lanty Smith that virtually no one outside of North Carolina has ever heard of into the interim CEO slot. Smith is a former textile executive who eventually formed an investment management firm, at various times in Greensboro and Raleigh. He joined First Union's Board in 1987 and was one of Ed Crutchfield's fly fishing buddies. He may be brilliant, who knows, but he has limited banking experience and at least for a few months is in charge of the sixth largest U.S. bank, a bank that has some big issues.

There must be more going on here. That's evidently the market's reaction as financials in general reacted badly. At times when a CEO who has ignored shareholder interests by diluting them with ridiculous acquisitions that are ridiculously priced is canned, the stock price rises. But with open issues about the depth of losses to come and no one really in charge, there was nothing for the market to applaud. Smith has asserted that Thompson's firing is based on the issues and losses that are already in the public domain and that there is no more news on that front. This comment must be taken somewhat seriously as in the U.S. legal environment even the appearance of misleading investors is a big problem. Wachovia's Board of course knows this, so at this exact moment they have not identified anything new with any certainty that caused the booting of the CEO.

So there's certainly more to the story but the focus moves on to the question of Thompson's successor. Who will it be? Speculation in the media today has simply been guesses, many of which don't make much sense. Ben Jenkins is apparently the insider with the greatest stature in and out of the company and he was named COO yesterday. At 64, however, he would in a sense be just another interim choice and one that would have never earned the CEO stripe without this twist of fate. The choice almost certainly must be someone coming from the outside.

Some credible outsiders mentioned as possible candidates, like Neal of GE, may not be a cultural or business fit for Wachovia. Some like Kelly of Bank of New York Mellon are too well and recently placed to likely have interest. Wachovia is a huge job, either to run or patch up for selling to Wells Fargo or JPMorganChase. In either case, run for the long term or a sell, a credible name has not been mentioned in the press. A best bet would be that a leading candidate would be someone with either JPM or WFC experience. Both of these firms have or have distributed elsewhere the best talent in the limited industry of large commericial banks that have morphed into national consumer and investment banking companies. Of the names not mentioned thus far, one stands out from this perspective. He may have no interest, comfortable now with a few board seats, family and golf. If by any chance he's willing, he's the leading candidate. Harvard, Stanford, Texas, and New York is where his experience was, and investors would welcome him. He knows the businesses, has a great capacity for analysis, and can surely work with North Carolinians. Wild idea maybe.

The speculation here is that what may be really going on is that the Wachovia Board has a candidate already in the cross hairs, and that candidate has said yes but get me in there before the patient dies or forget about it. And by the way, the candidate says, don't destroy your credibility by giving away presents to the man who investors want held accountable for destroying their wealth.

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